Should expats avoid Bitcoin?

With conflicting opinions around the globe as to whether Bitcoin is a real
currency, industry experts give their views on whether expats should steer
clear or cash in.

Just weeks after US prosecutors shut down digital currency operator Liberty Reserve for allegedly running one of the biggest money laundering schemes ever uncovered, prosecutors are scrutinising the use of virtual currencies - which can be traded anonymously - to evade tax.

The currency has increased in popularity since the concept was introduced five years ago by a developer using the pseudonym Satoshi Nakamoto.

The currency is not controlled by a government or central bank, and is traded on the internet. Transferring Bitcoins between countries is free, with no money transfer or currency exchange fees. They can also be converted back into cash in popular currencies including dollars, euros and pounds.

They are increasingly being accepted by merchants online in exchange for goods such as pizza and chocolates.

The currency is one of the few ways to move money around the world anonymously without government regulation – other than physically transporting cash or precious metals.

Expats in Cyprus turned to Bitcoins during the financial crisis to move money and beat the banks. As a result, the value of Bitcoins in USD more than doubled, from $46 on March 16 to $101 by April 1, according to BitCoinCharts.com.

“It is very easy to transfer. Transferring Bitcoins from one country to another is instant,” said Stevan Litobac, from MyCurrencyTransfer.com, an international money transfer service that handled more than 600,00 transactions last year.

The currency also has benefits for people on the move, as it can be exchanged locally.

“Bitcoin is especially critical for countries that do not have extensive banking infrastructure,” said expat Gabe Sukenik, of Coinapult, a company that enables Bitcoins to be sent via email and mobile phone.

“Our company was able to swiftly move from New York to Panama City thanks in large part to Bitcoin's ubiquitous nature.”

Litobac believes that security fears are unfounded.

“Bitcoin funds are secure, protected by well-proven cryptographic algorithms. The very same algorithms are used by credit card transactions online and electronic bank transfers,” he said.

However, virtual currency is by nature volatile, as it is not linked to any real goods or services.

“This can expose holders of the currency to losses,” said Simon Lang, digital forensics manager at Sytech Consultants.

“In April 2013 the value of one Bitcoin against the dollar fell by over $160 (from $266) in one just day.”

Expats using Bitcoin should take steps to protect funds on their computers.

“I’d recommend keeping a backup of your Bitcoins wallets and using a password management app, such as 1 Password or LassPass, to keep your wallet safe and secure,” said Litobac.

“The only instances I’ve heard of hacking have involved short or insecure passwords.”

He believes that the Thailand decision should not put expats off the virtual currency.

“As Bitcoin is a virtual currency, and virtual currencies are legal in most countries in the world, this is an isolated issue that may well be a temporary issue,” he said.